What inflation rate should I plan with?
The US long-run average is roughly 3%, and the Federal Reserve targets 2%. Planning at 3% builds in a margin without producing implausible numbers.
Calculate how inflation erodes purchasing power over time. See the real value of money in past or future dollars with historical CPI data.
Future cost = present cost × (1 + inflation)^years. Purchasing power = amount ÷ (1 + inflation)^years. Real return = (1 + nominal) ÷ (1 + inflation) − 1.
At 3% inflation, $50,000 of annual spending becomes about $90,300 in 20 years, and $100,000 sitting in cash keeps only $55,400 of today's buying power.
The US long-run average is roughly 3%, and the Federal Reserve targets 2%. Planning at 3% builds in a margin without producing implausible numbers.
Over a 30-year retirement at 3%, prices roughly double. A plan that ignores inflation understates the required nest egg by nearly half.
Historically equities (about 7% real), then real estate and TIPS. Cash and long nominal bonds lose purchasing power when inflation runs above their yield.